Statutory appraisal actions remain one of the most closely watched areas of Delaware corporate law.

Developments in this area include the Delaware Supreme Court reversing and remanding the Delaware Court of Chancery in DFC Global Corporation v. Muirfield Value Partners, L.P., et al., C.A. No. 10107 (Del. Aug. 1, 2017); two opinions by the Court of Chancery that produced a fair value determination below the merger price and two opinions by the same court that relied on the merger price in determining fair value; and, most recently, the Delaware Supreme Court heard oral argument in the appeal of In re Appraisal of Dell Inc., C.A. No. 9322-VCL (Del. Ch. May 31, 2016).

In this last case, the Court of Chancery gave no weight to deal price and relied on a discounted cash flow analysis to produce an appraised value that was roughly 28% above the merger price.

This paper reviews Delaware General Corporation Law (DGCL) guidance as to what constitutes ‘fair value”; provides a comprehensive review of the Delaware Supreme Court’s DFC Global decision; and cites cases where the Court of Chancery employed discounted cash flow valuations and cases where it gave full weight to deal price when sufficient indicators of a competitive sales process were present.

Implications of these recent developments in Delaware appraisal law for directors and officers of companies involved in a sales process include that Delaware courts appear increasingly likely to use the merger price as the basis for a determination of fair value when a “proper transactional process” is used.

In addition, the effects of a well-run and robust sales process are exemplified by the Delaware Supreme Court’s reversal and remand in DFC Global; and a determination that the merger price is not a reliable indicator of fair value does not necessarily result in fair value determinations higher than the merger price.

Finally, recent cases also suggest that a petitioner’s use of a “private equity carve-out” argument is unlikely to be persuasive or successful.

As the authors remind, the Delaware Supreme Court will soon have another opportunity to address some of these issues when it decides the Dell appeal.

Robert Saunders is a Partner at Skadden and heads the litigation practice of the firm’s Wilmington office. He litigates in federal and state courts, concentrating on matters involving the governance of business organizations and the federal securities laws.

Ronald Brown, III is Counsel in the Wilmington office of Skadden. He represents corporations, directors and officers in litigation involving corporate governance matters and the federal securities laws.

Skadden, Arps, Slate, Meagher & Flom LLP represents a broad spectrum of clients, including approximately 50 percent of the Fortune 250 industrial and service corporations, as well as financial and governmental entities, small, entrepreneurial companies, and cultural, educational and charitable institutions.